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Planning to Retire in Your 50s? 3 Things You Need to Know

By Maurie Backman - Jan 28, 2019 at 4:07PM

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Early retirement is a wonderful thing. Just make sure you can swing it financially.

Many workers dream of retiring early and enjoying the freedom that comes with it when they're relatively young, active, and healthy. And for some folks, that means retiring in their 50s.

While only 3% of Americans retire between the ages of 50 and 54, 13% do so between the ages of 55 and 60. If that's what your plan looks like, here are a few key points to keep in mind first.

1. You'll face penalties for withdrawing from savings

If you've saved well for retirement in an IRA or 401(k), you might be ready to make your final exit from the workforce. But not so fast -- the funds in your retirement plan will be subject to a 10% early withdrawal penalty if you take distributions prior to age 59 1/2. Therefore, you'll need another income source to fall back on if you'll be spending several years in your 50s without a paycheck from work.

Smiling middle-aged couple sitting on a beige couch.


Of course, if you have money in a non-tax-advantaged account (like a savings or regular brokerage account), then rest assured that it's yours to use as you please, when you please -- which means you might manage to get by without tapping your IRA or 401(k). The same holds true if you have rental properties that generate income, or a hobby that you're planning to monetize in retirement to pay the bills. Just have a backup plan until the funds in your IRA or 401(k) are yours free and clear of penalties.

2. You won't be eligible for Medicare

Many retirees count on Medicare to cover their health-related needs. But Medicare eligibility doesn't begin until age 65, which means that if you're retiring in your 50s, you'll need to secure coverage on your own. You have several options for doing so, some of which might be more expensive than others.

First, the best option: If you're retiring but your spouse isn't, and he or she gets health insurance through work, you can add yourself to that plan, pay its premium cost, and get coverage that way. If your spouse doesn't have insurance you can piggyback on, you can buy a plan on the open marketplace or retain your former plan through COBRA. The latter isn't a long-term solution, though, since COBRA generally runs out after 18 months. If you're retiring at any point in your 50s, you'll have a much larger gap to fill between then and when Medicare starts.

3. You can't claim Social Security -- and you might lower your benefits

Eligible seniors can begin collecting Social Security as early as age 62. If you're retiring in your 50s, you'll clearly have to wait a number of years before filing for benefits. But that's not the only Social Security-related consideration you'll need to take into account.

Your Social Security benefits are calculated based on your 35 highest years of earnings on record. For each year that you don't work, you'll have a $0 factored into your personal benefits equation. Now let's imagine you started working at age 22 and are retiring at age 55. That means you'll only have 33 years of work on record, and will have two $0s in the mix that bring your total monthly benefit down.

Granted, if you're in a strong enough position to manage to retire in your mid-50s, you're probably not banking too heavily on Social Security anyway. But if your plan is to spend down much of your savings and fall back on those benefits later, know that not working for a full 35 years could have negative consequences. Incidentally, filing for Social Security the moment you become eligible (age 62) will also result in a benefits reduction. But, again, if you have solid savings, that might not matter.

If you've saved well for decades and are ready to enjoy a less hectic, stressful lifestyle, then retiring in your 50s is something worth pursuing. Just make sure you've considered the ramifications of doing so before pulling the trigger.

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